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N pa finance project

  1. 1. APGB, KADAPA ABOUT BANKING INDUSTRY1.1 THE BANK: The word bank means an organization where people and business can investor borrow money; change it to foreign currency etc. According to Hals bury “ABanker is an individual, Partnership or Corporation whose sole pre-dominantbusiness is banking, that is the receipt of money on current or deposit account, andthe payment of cheque drawn and the collection of cheque paid in by a customer.’’1.2 THE ORIGIN AND USE OF BANKS: The Word ‘Bank’ is derived from the Italian word ‘Banko’ signifying abench, which was erected in the market-place, where it was customary to exchangemoney. The Lombard Jews were the first to practice this exchange business, the firstbench having been established in Italy A.D. 808. Some authorities assert that theLombard merchants commenced the business of money-dealing, employing bills ofexchange as remittances, about the beginning of the thirteenth century. About themiddle of the twelfth century it became evident, as the advantage of coined moneywas gradually acknowledged, that there must be some controlling power, somecorporation which would undertake to keep the coins that were to bear the royalstamp up to a certain standard of value; as, independently of the ‘sweating’ whichinvention may place to the credit of the ingenuity of the Lombard merchants- allcoins will, by wear or abrasion, become thinner, and consequently less valuable; andit is of the last importance, not only for the credit of a country, but for the easierregulation of commercial transactions, that the metallic currency be kept as nearly aspossible up to the legal standard. Much unnecessary trouble and annoyance has beencaused formerly by negligence in this respect. The gradual merging of the businessof a goldsmith into a bank appears to have been the way in which banking, as wenow understand the term, was introduced into England; and it was not until longafter the establishment of banks in other countries-for state purposes, the regulationof the coinage, etc. that any large or similar institution was introduced into England.It is only within the last twenty years that printed cheques have been in use in thatestablishment. First commercial bank was Bank of Venice which was established in1157 in Italy.MANAGEMENT OF NON-PERFORMING ASSETS 1 S.V PG COLLEGE: KADAPA
  2. 2. APGB, KADAPA1.3 HISTORY OF BANKING IN INDIA: Banking in India originated in the last decades of the 18th century. The firstbanks were The General Bank of India which started in 1786, and the Bank ofHindustan, both of which are now defunct. The oldest bank in existence in India isthe State Bank of India, which originated in the Bank of Calcutta in June 1806,which almost immediately became the Bank of Bengal. This was one of the threepresidency banks, the other two being the Bank of Bombay and the Bank of Madras,all three of which were established under charters from the British East IndiaCompany. For many years the Presidency banks acted as quasi-central banks, as didtheir successors. The three banks merged in 1921 to form the Imperial Bank of India,which, upon Indias independence, became the State Bank of India. Indian merchants in Calcutta established the Union Bank in 1839, but it failedin 1848 as a Consequence of the economic crisis of 1848-49. The Allahabad Bank,established in 1865 and still functioning today, is the oldest Joint Stock bank inIndia.(Joint Stock Bank: A company that issues stock and requires shareholders to beheld liable for the companys debt) It was not the first though. That honor belongs tothe Bank of Upper India, which was established in 1863, and which survived until1913, when it failed, with some of its assets and liabilities being transferred to theAlliance Bank of Simla. Foreign banks too started to arrive, particularly in Calcutta,in the 1860s. The Comptoire dEscompte de Paris opened a branch in Calcutta in1860, and another in Bombay in 1862; branches in Madras and Puducherry, then aFrench colony, followed. HSBC established itself in Bengal in 1869. Calcutta wasthe most active trading port in India, mainly due to the trade of the British Empire,and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank,established in 1881 in Faizabad. It failed in 1958. The next was the Punjab NationalBank, established in Lahore in 1895, which has survived to the present and is nowone of the largest banks in India. The period between 1906 and 1911, saw theestablishment of banks inspired by the Swadeshi movement. The Swadeshimovement inspired local businessmen and political figures to found banks of and forthe Indian community.MANAGEMENT OF NON-PERFORMING ASSETS 2 S.V PG COLLEGE: KADAPA
  3. 3. APGB, KADAPA A number of banks established then have survived to the present such asBank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank andCentral Bank of India. The fervour of Swadeshi movement lead to establishing ofmany private banks in Dakshina Kannada and Udupi district which were unifiedearlier and known by the name South Canara ( South Canara ) district. Fournationalized banks started in this district and also a leading private sector bank.Hence undivided Dakshina Kannada district is known as "Cradle of IndianBanking". · The Reserve Bank of India, Indias central banking authority, wasnationalized on January 1, 1949 under the terms of the Reserve Bank of India(Transfer to Public Ownership) Act, 1948 (RBI, 2005b). In 1949, the BankingRegulation Act was enacted which empowered the Reserve Bank of India (RBI) "toregulate, control, and inspect the banks in India." · The Banking Regulation Act alsoprovided that no new bank or branch of an existing bank could be opened without alicense from the RBI, and no two banks could have common directors.1.4 NATIONALIZATION OF BANKS: Banks Nationalization in India: Newspaper Clipping, Times of India, July,20, 1969 Despite the provisions, control and regulations of Reserve Bank of India,banks in India except the State Bank of India or SBI, continued to be owned andoperated by private persons. By the 1960s, the Indian banking industry had becomean important tool to facilitate the development of the Indian economy. At the sametime, it had emerged as a large employer, and a debate had ensued about thenationalization of the banking industry. Indira Gandhi, then Prime Minister of India,expressed the intention of the Government of India in the annual conference of theAll India Congress Meeting in a paper entitled "Stray thoughts on BankNationalization. "The meeting received the paper with enthusiasm. Thereafter, her move wasswift and sudden. The Government of India issued an ordinance and nationalized the14 largest commercial banks with effect from the midnight of July 19, 1969.Jayaprakash Narayan, a national leader of India, described the step as a"masterstroke of political sagacity." Within two weeks of the issue of the ordinance,MANAGEMENT OF NON-PERFORMING ASSETS 3 S.V PG COLLEGE: KADAPA
  4. 4. APGB, KADAPAthe Parliament passed the Banking Companies (Acquisition and Transfer ofUndertaking) Bill, and it received the presidential approval on 9 August 1969. A second dose of nationalization of 6 more commercial banks followed in1980. The stated reason for the nationalization was to give the government morecontrol of credit delivery. With the second dose of nationalization, the Governmentof India controlled around 91% of the banking business of India. Later on, in theyear 1993, the government merged New Bank of India with Punjab National Bank. Itwas the only merger between nationalized banks and resulted in the reduction of thenumber of nationalized banks from 20 to 19. After this, until the 1990s, thenationalized banks grew at a pace of around 4%, closer to the average growth rate ofthe Indian economy.1.5 LIBERALIZATION OF BANKING IN INDIA: In the early 1990s, the then Narsimha Rao government embarked on a policyof liberalization, licensing a small number of private banks. These came to be knownas New Generation tech-savvy banks, and included Global Trust Bank (the first ofsuch new generation banks to be set up), which later amalgamated with OrientalBank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank.This move, along with the rapid growth in the economy of India, revitalized thebanking sector in India, which has seen rapid growth with strong contribution fromall the three sectors of banks, namely, government banks, private banks and foreignbanks. The next stage for the Indian banking has been set up with the proposedrelaxation in the norms for Foreign Direct Investment, where all Foreign Investors inbanks may be given voting rights which could exceed the present cap of 10%,atpresent it has gone up to 74% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, tillthis time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4)of functioning. The new wave ushered in a modern outlook and tech-savvy methodsof working for traditional banks. All this led to the retail boom in India. People notjust demanded more from their banks but also received more. Currently (2007),banking in India is generally fairly mature in terms of supply, product range andreach-even though reach in rural India still remains a challenge for the private sectorMANAGEMENT OF NON-PERFORMING ASSETS 4 S.V PG COLLEGE: KADAPA
  5. 5. APGB, KADAPAand foreign banks. In terms of quality of assets and capital adequacy, Indian banksare considered to have clean, strong and transparent balance sheets relative to otherbanks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressurefrom the government. The stated policy of the Bank on the Indian rupee is to managevolatility but without any fixed exchange rate-and this has mostly been true. Withthe growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retailbanking, mortgages and investment services are expected to be strong. One may alsoexpect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of Indiaallowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a privatesector bank) to 10%. This is the first time an investor has been allowed to hold morethan 5% in a private sector bank since the RBI announced norms in 2005 that anystake exceeding 5% in the private sector banks would need to be vetted by them.1.6 LIST OF BANKS IN INDIA:• CENTRAL BANK (RESERVE BANK OF INDIA)• NABARD• NATIONALIZED BANKSAllahabad Bank , Andhra Bank , Bank of Baroda · Bank of India · Bank ofMaharashtra · Canara Bank · Central Bank of India · Corporation Bank · Dena Bank ·IDBI Bank · Indian Bank · Indian Overseas Bank · Oriental Bank of Commerce ·Punjab & Sind Bank · Punjab National Bank · Syndicate Bank · UCO Bank · UnionBank of India · United Bank of India · Vijaya Bank.• STATE BANK GROUPState Bank of India · State Bank of Bikaner & Jaipur · State Bank of Hyderabad ·State Bank of Indore · State Bank of Mysore · State Bank of Patiala, State Bank ofTravancore• PRIVATE BANKSAxis Bank · Bank of Rajasthan · Bharat Overseas Bank · Catholic Syrian Bank ·Dhanalakshmi Bank · South Indian Bank · City Union Bank · Federal Bank · HDFCMANAGEMENT OF NON-PERFORMING ASSETS 5 S.V PG COLLEGE: KADAPA
  6. 6. APGB, KADAPABank · ICICI Bank · IndusInd Bank · ING Vysya Bank · Jammu & Kashmir Bank ·Karnataka Bank Limited · Karur Vysya Bank · Kotak Mahindra Bank · LakshmiVilas Bank · Nainital Bank · Ratnakar Bank ·Saraswat Bank · Tamilnad MercantileBank Limited · Yes Bank• FOREIGN BANKSABN AMRO · Abu Dhabi Commercial Bank · Antwerp Diamond Bank · ArabBangladesh Bank ·Bank International Indonesia · Bank of America · Bank ofBahrain & Kuwait · Bank of Ceylon · Bank of Nova Scotia · Bank of TokyoMitsubishi UFJ ·Barclays Bank · Citibank India · HSBC · Standard Chartered ·Deutsche Bank · Royal Bank of Scotland.• REGIONAL RURAL BANKSNorth Malabar Gramin Bank · South Malabar Gramin Bank · Pragathi Gramin Bank· Shreyas Gamin Bank• FINANCIAL SERVICESReal Time Gross Settlement (RTGS) · National Electronic Fund Transfer (NEFT) ·Structured Financial Messaging System (SFMS) · Cash Tree · Cash net · AutomatedTeller Machine (ATM)• BANKS IN ASIASovereign states Afghanistan · Armenia1 · Azerbaijan1 · Bahrain · Bangladesh ·Bhutan · Brunei ·Burma2 · Cambodia · Peoples Republic of China · Cyprus1 · EastTimor3 · Egypt4 ·Georgia4 ·India · Indonesia · Iran · Iraq · Israel · Japan · Jordan ·Kazakhstan4 · North Korea · South Korea ·Kuwait · Kyrgyzstan · Laos · Lebanon ·Malaysia · Maldives · Mongolia · Nepal · Oman ·Pakistan · Philippines · Qatar ·Russia4 · Saudi Arabia · Singapore · Sri Lanka · Syria · Tajikistan · Thailand ·Turkey4 · Turkmenistan · United Arab Emirates · Uzbekistan · Vietnam · Yemen• STATES WITH LIMITED RECOGNITIONAbkhazia1 · Nagorno-Karabakh · Northern Cyprus · Palestine · Republic of China5 ·South Ossetia1MANAGEMENT OF NON-PERFORMING ASSETS 6 S.V PG COLLEGE: KADAPA
  7. 7. APGB, KADAPA• DEPENDENCIES, AUTONOMIES OTHER TERRITORIESAche · Adjara1 · Akrotiri and Dhekelia · Altai · British Indian Ocean Territory ·Buryatia ·Christmas Island · Cocas (Keeling) Islands · Guangxi · Hong Kong · InnerMongolia · Iraqi Kurdistan · Khakassia · Macau · Nakhchivan · Ningxia · Papua ·Sakha Republic · Tibet · Tuva · West Papua · Xinjiang ABOUT APGB2.1 HISTORY Andhra Pragathi Grameena Bank was established on 1st June, 2006 afteramalgamation of 3 RRBs namely Rayalaseema Grameena Bank (established on06.08.1976), Sree Anantha Grameena Bank (established on 01.11.1979) and PinakiniGrameena Bank (established on 11.6.1982). These Regional Rural Banks wereestablished under the provisions of RRB Act, 1976 and consequent to theGovernment of India Notification dt.1.6.06, were amalgamated and formed as a newentity called Andhra Pragathi Grameena Bank with its Head Office at Kadapa. The bank is operating in Kadapa, Anantapur, Kurnool, Nellore and Prakasamdistricts of Andhra Pradesh and having Regional Offices in each District HeadQuarters. The bank is catering to the needs of rural poor covering Agriculture, SmallIndustries, Village Artisans, Small business besides catering to the needs of NonPriority sector also. The Bank is having a total business of 7493.46 cores as on30.09.2010. The bank is assisting the SHGs in a massive way and financed to morethan 105587 SHGs with outstanding SHG advances of 792.88 crores. The bank is progressing with all-round development and introducing newproducts to cater the needs of the people in its service area. The Bank is improvingcustomer service by computerizing all its branches. The bank has been propagatinginnovations in Rural Banking and also has been receptive to new ideas.2.2 BUSINESS HIGHLIGHTS OF APGB AS ON 30.09.20101. Andhra Pragathi Grameena Bank occupied No.1 position in Net worth among allthe RRBs in the country. The Bank has 372 branches in 5 districts. VIZ., Kadapa,MANAGEMENT OF NON-PERFORMING ASSETS 7 S.V PG COLLEGE: KADAPA
  8. 8. APGB, KADAPAAnantapur, Kurnool, Nellore and Prakasam districts. The operating profit of theBank for the year Half year ended 30.09.2010 touched 106.53 crores.2. Total business crossed 7493.46 crores.3. Deposits crossed 3656.04 crores with a Y-O-Y growth rate of 14.12%.4. Advances crossed 3837.42 crores, with a growth rate of 17.03% over theSeptember-2009.5. The Bank has customer base with 30.91 lakhs deposit accounts and 9.12 lakhsborrower accounts.6. Priority sector advances reached a level of 3386.38 crores, constituting88.25% of total advances. Agriculture advances touched a level of 2984.56 crore,constituting 77.78% of total advances. The Y-O-Y growth under Priority sectoradvances is 20.46% and Agl. Advances is 25.93% .7. 406102 Kisan Credit Card accounts are outstanding with a loan amount of1468.56 crore.8. Actively participated in the scheme of achieving 100% Financial Inclusion in allthe 5 districts–Kadapa, Kurnool Anantapur, Nellore and Prakasam.9. The Bank has computerized all its 372 branches and 3 ECs with Total BranchMechanization and 100% of its business is computerized.10. The highest number of 7.99 lakhs Pragathi Janatha No-Frill accounts SBaccounts, are opened under total Financial Inclusion.11. 105587 SHGs loan accounts are outstanding with loan amount of 792.88crores. Provided additional financial assistance to the SHGs under the special DairyDevelopment Project.12. Per branch business and Per-employee business stood at 19.67 crores and 3.65 crores respectively.13. Opened 12 new branches during the first half of the current financial year.2.3 FUTURE PLANS OF APGB:The Bank is aiming to cross the following mile-stones in the year (2010-11).1. Achieve a business level of 8600 crores.2. Planning to open 28 more branches during the current year in the in the area ofoperation of the bank in tune with the policy of Govt. of India.MANAGEMENT OF NON-PERFORMING ASSETS 8 S.V PG COLLEGE: KADAPA
  9. 9. APGB, KADAPA3. CBS: The Bank has finalized C-Edge software for implementation of CoreBanking Solution in its branches. The bank is planning to implement Core BankingSolution in 5 Pilot branches before 31.12.2010 and in 150 branches by 31.03.2011.4. Planning to engage Business Correspondents under Total Financial Inclusion. We are hopeful of achieving the set goals in the present year (2010-11) withthe cooperation of one and all, more particularly the clientele of the Bank andGovernment Agencies. We thank the media both print and electronic for theircooperation in projecting the image of our Bank in good stead.2.4 SOCIAL RESPONSIBILITIES OF APGB: The Bank is catering to the needs of the Rural Community and activelyassociated with Rural Development. Apart from the business development, the Bankis undertaking Social Responsibilities for bringing desired change in the ruralcommunity and moving them towards improving the living standards of the ruralcommunity. The Bank has initiated the following steps in this direction.1. Establishment of Farmers’ Clubs: The Bank has established 321Farmers Clubs through which the Bank is undertaking activities for enriching theFarmers with latest Technology and improving the cultivation methods by way ofexpert lectures, study tours and demonstrations. The progressive Farmers of thevillage are the members of the club and they play active role in dissemination of thefarming techniques to the other farmers in the village. One of our clubs has securedthe Best Club Award from the NABARD. These clubs will play major role intransforming the traditional farmers to progressive farmers.2. Establishment of Training Institutes: The Sponsor Bank i.e. SyndicateBank has established training institutes (SIRD) at Kadapa and Kurnool for trainingthe Rural Youth. The Bank is actively associated with providing of training andimparting the skills to the unemployed rural youth. Further, the SIRDs are alsoextending help to the trained candidates to establish the business activity bycoordinating with the banks for extending loans to them. The trainings are providedin the fields of photography, tailoring, Mobile phone repairing, Embroidery,Computer courses like graphics, DTP, MS-Office etc. The practical training isprovided in the above fields by the institute, which enables the trained youth toestablish their own businesses.MANAGEMENT OF NON-PERFORMING ASSETS 9 S.V PG COLLEGE: KADAPA
  10. 10. APGB, KADAPA3. Conducting of extension activities: The Bank is conducting extensionprogrammers through its branches for educating the farmers in various fields like,post harvest technologies, improved agricultural practices, insect and pestmanagement in prominent crops, techniques in water & soil conservation methods,integrated pest management and dairying. These programmer are most useful to thefarmers to equip themselves with latest technologies in the field of Agriculture andhelp them to improve the productivity of the crops.4. Improving the water resources: As a part of Social Responsibility, theBank has undertaking the clearing/ cleaning of village ponds to improve the waterretention capacity of the village tanks. The supply channels are also cleaned with theassistance of the Bank which will help for free flow of water. The Bank iscontributing some amount and involving all the villagers for undertaking the aboveworks. The villagers are voluntarily participating in the above programmer andmaking the programme successful. The Bank has extended assistance for cleaning/clearing of 123 village ponds so far and the same is being continued.5. Contribution to Renewable Energy: The Bank has entered MoU withthe suppliers of Solar Energy Systems and extending financial assistance forinstallation of Solar Energy Systems. Further, the Bank has established renewableenergy Systems in 30 branches for un-interrupted power supply. Thus the Bank ispromoting the renewable energy sources there by contributing its might to maintainthe ecological balance.2.5 SECURITY MEASURES & OTHER DEVELOPMENTS OFAPGB:1. Security Measures: The Bank has provided fire extinguishers and securityalarms to all the branches. During the financial year, the Bank has provided StrongRoom facility to 8 branches taking the total number of branches having strong roomfacility to 77. The Bank has also provided 115 BB class safes to the branches, wherethe jewel loan port folio has crossed 100 lakhs and another 50 BB class safes willbe provided during the current fiscal.MANAGEMENT OF NON-PERFORMING ASSETS 10 S.V PG COLLEGE:KADAPA
  11. 11. APGB, KADAPA2. Safe Deposit Lockers: In order to improve the customer service, the Bank isproviding Safe deposit lockers facility in all urban and Semi-urban branches and alsoin some rural branches, where business potential is available. During the financialyear, the Bank has provided 16 Safe Deposit Lockers, thus taking the total availablelockers at the branches to 106.3. Cash counting Machines: The bank has provided 289 cash countingmachines to branches so far and taken steps to supply another 75 machines duringthe current year.4. Co-financing: NABARD, Andhra Pradesh Regional Office has entered intoMemorandum of Understanding (MoU) with Andhra Pragathi Grameena Bank(APGB) on Co-financing at YSR (Kadapa) today with an objective to increase theflow of ground level credit to agriculture and allied activities in the State. Under thisagreement, while NABARD will leverage its technical appraisal and financialresources, APGB would utilize its domain knowledge of the local area. Under Co-financing, NABARD and APGB jointly finance new projects or even projects formodernization & expansion. Projects involving sunrise technology and largefinancial outlays and long gestation period, would merit consideration. The thrustareas under co-financing would cover projects in Agro Processing, Post HarvestManagement, Contract Farming, Organic Farming, Bio Fertilizers/Organic Manures,Plantation & Horticulture, Dairy, Poultry, Fisheries, Eco-tourism, Non-farm Sector& Allied activities, Carbon Trading & Allied activities etc. Andhra Pragathi Grameena Bank has responded to the initiative of NABARDto join it for co-financing innovative projects in agriculture and rural developmentsector so as to increase its business further. Andhra Pragathi Grameena Bank has itspresence in 5 districts of the State viz. YSR, Kurnool, Prakasam, Nellore andAnanthapur and operates through 372 branches among which 36 branches are inurban, 84 in semi-urban and 252 in rural areas. The Memorandum of Understandingbetween NABARD and APGB was signed on 30th September 2010 with a commonobjective of financing agri/ agro–industrial projects in the state. While Shri P. Maharajah, CGM signed the MoU on behalf ofNABARD, Shri K. Preetam Lal, Chairman signed the MoU on behalf of AndhraMANAGEMENT OF NON-PERFORMING ASSETS 11 S.V PG COLLEGE:KADAPA
  12. 12. APGB, KADAPAPragathi Grameena Bank. This MoU between NABARD and Andhra PragathiGrameena Bank would facilitate accelerated flow of institutional credit to largerunits in agriculture and agro processing, agri marketing and allied sectors.2.6 APGB VISION:“ Placing our Organization at the Highest Altitude among the RRBs in the countryand making it financially strong, viable, vibrant and an effective proactiveinstrument of social change, with an eye to work for overall development of thepeople and the economy of the operational area, through aggressive banking.”2.7 OUR MISSION:• To increase the business on a sustainable manner with consistent efforts andbring all the house holds in the operational area into banking folds.• To fine tune the existing products and design new products and services to matchthe competition prevailing in the market.• To mould the staff of the bank as computer literate and technologically savvy andto achieve hundred percent computerization of branches. To continue to be a true friend, philosopher and guide to customers withdedicated service and accelerate the pace of development of the operational area foraccomplishing the Banks Object.2.8 BOARD OF DIRECTORSSl. Name Occupation Nominee DirectorNo. of1. Sri K.Preetam Lal Chairman --2. Sri A.Sreerami Reddy, Deputy General Manager,Sponsor Bank Syndicate Bank, Regional Office, Ritwik Enclave,A.K. Nagar,MANAGEMENT OF NON-PERFORMING ASSETS 12 S.V PG COLLEGE:KADAPA
  13. 13. APGB, KADAPA NELLORE – 524 004.3. Sri C.SambashivaAsst. General Manager,Sponsor Bank Reddy, Syndicate Bank, Regional Office, ANANTAPUR – 515 001.4. Sri Artatran Sethy, Asst. General Manager,Reserve Bank of Rural Planning & CreditIndia Dept., Reserve Bank of India, 6-1-56, Secretariat Road, Saifabad,Hyderabad – 500 004.5. Sri M.Prem Kumar, Deputy General Manager,NABARD NABARD,Regional Office, 1-1-61 RTC “X” Roads, Musheerabad, HYDERABAD 500020.6. Smt. Vasudha Mishra,Principal Secretary toState Government IAS., Government (IF) Finance Department, Government of Andhra Pradesh, HYDERABAD - 500 001.7. Sri V.Anil Kumar, IAS., District Collector,State Government KADAPAMANAGEMENT OF NON-PERFORMING ASSETS 13 S.V PG COLLEGE:KADAPA
  14. 14. APGB, KADAPA8. Smt.K.Padmaja Prasad 37-1-307 (144), Non-official Opp. to Srinivasa PublicDirector from School, Govt. of India Near Dist. Registrar Office, Bhagya Nagar, II line, ONGOLE - 523 001.9. Sri P.Pitchi Reddy D.No.7/468-1, Non-official N.G.O. Colony,Director from Sabhapathi Road,Govt. of India KADAPA.2.9 INTEREST RATES ON LOANS & ADVANCES WITHEFFECT FROM 22.09.2011 INTERESTPURPOSE RATE (% p.a.)A. FARM SECTORI. Short Term Loans xxx1.Crop/Pragathi KCC/Rythu Mitra Groups / Joint LiabilityxxxGroups / JL Agriculture i. During Interest Subvention Period a) Upto & inclusive of 3.00 lakhs 7.00 b) Above 3.00 lakhs 14.50 ii. Beyond Interest Subvention Period a) Upto & inclusive of 25.000/- 11.50 b) Above 25,000/- &upto & inclusive of11.50+2.00% OD 50,000/- interest c) Above 50000/- & upto & inclusive of 12.50+2.00% OD 1.00 lakh interestMANAGEMENT OF NON-PERFORMING ASSETS 14 S.V PG COLLEGE:KADAPA
  15. 15. APGB, KADAPA d) Above 1.00 lakh & upto & inclusive of 13.50+ 2.00% OD 3.00 lakhs interest e) Above 3.00 lakhs 14.50+2.00% OD interest2. Produce Loans xxx a) Upto & inclusive of 2 lakhs 10.50 b) Above 2.00 lakhs 11.00II. Agricultural Term Loans Xxx1. Agriculture Term Loans & Allied Activities a) Upto & inclusive of 50000/- 13.00 b) Above 50000/- 13.502. APMIP 13.003. Pragathi Capital Investment Scheme for Organic Farming 13.004. Pragathi Agri Business & Clinic Centres 14.005. Pragathi Land Purchase Scheme As applicable to Agl. term loans6.Rescheduled Loans As applicable to Agl. Term loansThe above rates under Agriculture Term Loans are applicable to all Agriculture TermLoans other than those specifically mentioned.B. INDIRECT FINANCE TO AGRICULTURE a) Finance to APFSCS i) ST/MT/LT 10.50ii) ODC/ODj/ODH 13.00 b) Loans/Working Capital limits to Dealers of inputs toAs under C (forAgriculture (fertilizers, pesticides, seeds, minor and microNon Farm sectorirrigation equipment, etc.) advances)C. NON FARM SECTOR1. Retail Trade, Small Business, Small Scale Industries, SMESector, Road Transport Operators, GCC etc. (Working Capital& Term Loans) A) Upto & inclusive of 50000/- 13.00MANAGEMENT OF NON-PERFORMING ASSETS 15 S.V PG COLLEGE:KADAPA
  16. 16. APGB, KADAPA B) Above 50000/- & Upto & inclusive of 1.00 lakh 13.50 C) Above 1 lakh & Upto & inclusive of 2.00 lakhs 14.00 D) Above 2.00 lakhs 15.00The above rates under Non Farm Sector are applicable to both Priority and NonPriority Sector advances other than those specifically mentioned.D. OTHER PRIORITY SECTOR LOANS xxx1. Self Help Group Loans [SHGs] (irrespective of any amount) 14.002. Education Loans xxx A) Upto & inclusive of 4.00 lakhs 13.00 B) Above 4.00 lakhs 14.503. Housing Loans to public (incl. under Gruhini, Rajivxxx Gruhakalpa, Pragathi Farm House, Individual Housing Loans under Indiramma Schemes) A) Upto repayment period of 5 years 10.50 B) Above 5 years & upto 10 years 11.00 C) Above 10 years 11.504. Vehicle Loans (2/3/4 wheelers) to Professional & Self xxx Employed persons/Business people, Salaried persons A) Upto 3.00 lakhs 14.00 B) Above 3.00 lakhs 15.005) Pragathi Doctors’ Plus 11.006) Pragathi Solar Home Lighting/Heating System • Normal Scheme 11.00 • Under JNNSM 5.007) Pragathi Swarojgar Credit Card Scheme 13.008) SGSY/ Rajiv Yuvasakthi/Other Govt sponsered schemes As applicable to purpose of loan & quantum9) Loans under DRI 4.00E. NON PRIORITY SECTOR LOANS xxx 1) Loans/OD against approved securities like NSCs, LIC14.00policiesMANAGEMENT OF NON-PERFORMING ASSETS 16 S.V PG COLLEGE:KADAPA
  17. 17. APGB, KADAPA 2) Personal Banking Loans to employees xxx a)Employees drawing their salaries through our Bank 15.00 b) Employees drawing their salaries through other Banks 18.00 3) Branch Premises loans 14.00 4) Jewel Loans (non agrl) 14.00 5) BGs paid (incl. OD interest) 18.00 6) Commercial complexes/School or College buildings, etc. 18.00 7) Multi Purpose Mortgage Loans 16.00 8) Pragathi Rent Plus 16.00 8) CDD – Discount to be collected by way of interest Xxx (both priority & non priority) a) for a minimum period of 10 days @ 16.00 b) From 11th day (quarterly compounded) @ 18.00 9) Debit Balances in SB/Current A/cs 18.0010) Loans on Deposits / ODDs XxxMANAGEMENT OF NON-PERFORMING ASSETS 17 S.V PG COLLEGE:KADAPA
  18. 18. APGB, KADAPA a) Against Nitya Nidhi Deposit 11.00 b) Against other term deposits 2.00 above the deposit rate without any ceiling c) Against term deposits prematurely withdrawn within 1515.00daysOVERDUE/PENAL RATES OF INTERESTA. Overdue interest rate over the applicable normal rate i) DRI Advances Nil ii) Aggregate Credit Limits not exceeding 5000/- in theNilcase of Non Priority Sector advances and 25000/- in the caseof Priority Sector advances iii) Aggregate Credit Limits exceeding 5000/- in the case2.00of Non Priority Sector advances and 25000/- in the case ofPriority Sector advancesB. Penal interest over the applicable normal rate i) For non-submission/delayed submission of monthly stock 1.00statements to be charged for delayed periodMANAGEMENT OF NON-PERFORMING ASSETS 18 S.V PG COLLEGE:KADAPA
  19. 19. APGB, KADAPA ii) For diversion of funds 2.00 iii) For non-submission of renewal proposal/ additionalinformation/requirements on the renewal proposal for thedelayed period a) up to 3 months from the date of expiry of credit limit till the 2.00date of receipt of renewal proposal b) beyond 3 months from the date of expiry of credit limit till 2.00the date of receipt of renewal proposal c) beyond 30 days from the date of calling for additional 2.00information/requirements on the renewal proposalC. Loans pre-closed by taking over by other banks/2.0% of loaninstitutions balanceD. The total Overdue interest / penal interest to be charged 2.00on account of any of the above reasons should not exceedMANAGEMENT OF NON-PERFORMING ASSETS 19 S.V PG COLLEGE:KADAPA
  20. 20. APGB, KADAPA MANAGEMENT OF NON–PERFORMING ASSETS3.1 INTRODUCTION: 1. There is a general concept commonly accepted “A Man or Woman with no money is equal to a dead.” Here it is suitable to insist the importance of money. 2. A Rumanian proverb says that “A man without money is like a bird with no wings.” 3. The basic functions of banks are accepting all kinds of deposits and supply money. “The life blood of business concerns”. By lending process. 4. The banks supply the money for all activities. To concentrate on the development of rural economy, the govt of India extended help for the rural Farmers, artesians, entrepreneurs by opening region rural banks, in addition to commercial banks and co-operative banks. 5. In the present Indian economical arena, the regional rural banks are supposed to play a vital role in achieving the objective of economic development by providing effective credit support to various regions, sectors and sections.3.2 CONCEPTS AND TYPES: 1. Non-Performing assets are those assets of the banks that do not generate income. 2. It has been well defined by “Securization and Reconstruction of Financial Assets are Enforcement of Security Interest”.(SARFAESI) 3. An asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful and loss assets in accordance with the direction issued by the RBI. 4. The asset of the banks are classified as performing and Non-Performing assets .which generate income for the bank. A Non-Performing assets is an asset which fails to generate income for the bank.MANAGEMENT OF NON-PERFORMING ASSETS 20 S.V PG COLLEGE:KADAPA
  21. 21. APGB, KADAPA 5. As per the regulation, an asset is considered to have gone due, the past due amount remaining uncovered where the borrower has defaulted as principal and interest repayment for more than one quarter or 90 days is called as Non- Performing asset. According to guide lines of RBI. 6. NPAs consist of Sub-Standard, Doubtful and Loss assets. It is said that any asset of the bank generally turn into NPAs when they fail to yield income during a certain period. 7. As a result a doubtful asset finds its ways from Sub-standard assets after 18 months in Indian context against one year under the international norms and finally. When it is found one year under the it moves to loss assets category.3.3 PROVISIONING FOR NPAS: In the light of the Narasimhan committee recommendations, from timeto time, the Reserve bank of India has issued the guidelines in respect of recognitionof NPAs, and their classification and provisioning. The following are the RBIguidelines for the provisions for NPAs.3.3.1 STANDARD ASSETS: The regional rural banks advised to make a general provision forstandard assets at the following rates:a) Direct advances to agricultural and SME sectors at 0.25%b) All other advances at 0.40%3.3.2 SUB-STANDARD ASSETS: A general provision of 10% of net outstanding should be madewithout making any allowances for export credit guarantee corporation guaranteecover and securities available .The ‘unsecured exposures’ which are identified assub-standard would attract additional provision of 10%, i.e. a total of 20% on theoutstanding balance.MANAGEMENT OF NON-PERFORMING ASSETS 21 S.V PG COLLEGE:KADAPA
  22. 22. APGB, KADAPA3.3.3 DOUBTFUL ASSETS: Provision should be made made for 100% of the extent to which theadvance is not covered by the realizable value of the security to which the bank has avalid resource and the realizable value is estimated on a realistic basis with regard tothe secured portion, the provision is to be made as specified below.NON-PERFORMING ASSETS PROVISIONING:Doubtful status Percentage of provisioning as secured portionUp to One year 20%>1<=3 years 30%>3years 100%3.3.4 LOSS-MAKING ASSETS: It is advised by RBI to the banks that in cases where loss assetsare more than two years old, the banks submit a review note to their managementcommittee/boards of directors giving specific reasons as to why steps have not beentaken for recovery.3.3.5 OTHER PURPOSES: Usually, banks have retirement benefits namely provident fund, gratuity.Now banks have pension’s schemes also. Most of banks have set up recognizedgratuity or pension fund to fund the relative liability. Technically the standard assets are performing assets. The remainingcategories of Sub-standard, doubtful and less assets are NPAs. According to RBIdirection, all the banks are required to maintain NPAs-both on gross and net basis.MANAGEMENT OF NON-PERFORMING ASSETS 22 S.V PG COLLEGE:KADAPA
  23. 23. APGB, KADAPA3.4 RBI’S GUIDELINE FOR NPAS RECOGNITION:Loans& Advances Guideline applicable Guideline applicable from 31.03.2001 from 31.03.2004Term loan interest and/orinstallment remain over 180 days 90 daysdue for more thanOverdraft/credit A/C. Remains out of order Remains out of orderBill purchased anddiscounted remains over 180 days 90 daysdue for more thanAgricultural loan interest Two harvest seasons but Two harvest seasons butand or installments remain not exceeding two and half not exceeding two and halfover due for years. yearsOther accounts any amountto be received remains 180 days 90 daysover due for more than3.5 CAPITAL ADEQUACY: Non-performing assets do not earn any income. They adversely affectthe capital adequacy ratio that reveals the financial health condition of a bank. The capital adequacy ratio is defined as the ratio between a bank’scapital and its risk-weighted assets. Capital signifies the strength of an organization.This is truer in case of banks, because adequate capital not only infuses depositors‘and regulators’ confidence, but also acts as a cushion against possible losses arisingout of normal risks inherent in banking. Like all other businesses, banks hold capitalas a buffer against unforeseen losses. Unlike other enterprises, however, one of theMANAGEMENT OF NON-PERFORMING ASSETS 23 S.V PG COLLEGE:KADAPA
  24. 24. APGB, KADAPAmain functions of banks is to perform financial intermediation between otherparticipants in the economy. To ensure confidence and to protect the interest of depositors, bankingactivities are subject to licensing, to specific regulations and to supervisions. it is thesupervision of banks that has been on a rise due to regulatory capital requirement.Regulatory capital is the minimum capital that the supervisory authorities requirebanks to set aside in order to meet potential losses. This is meant to ensure that thebanks can absorb losses arising from their activities on an ongoing basis. Aminimum capital adequacy ratio (ratio of capital to risk-weighted assets-CRAR) of9% has been prescribed for all scheduled commercial banks and also primary(urban)co-operative banks in the country under the ‘Basel1’ framework. Commercial banks are also set to over to the more sophisticatedrequirements under the new capital adequacy requirements (‘Basel2’). However, nosuch norms have been specified for regional rural banks so far. Regional rural banksshould disclose the level of CRAR as on march 31, 2008 in their balance sheet as“Notes on accounts”. “Regional rural banks may be advised to maintain a minimumlevel of capital to risk-weighted assets ratio (CRAR) which would be progressivelyraised to the current level of CRAR as per the Basel 1 norms”. Dr. D. Subbarao, Governor, RBI has said at the time of meeting toannounce the Annual policy 2009-2010 that the phased introduction of capital torisk-weighted assets ratio(CRAR) to the regional rural banks has to be done by 2012.Honourable union Finance Minister Sri. Pranab Mukherji, in the meeting to reviewthe performance of regional rural banks held on 18th August, 2009 said that, “Havingrecapitalized the regional rural banks by over 1700crore,the central governmentis decided to setup a committee to assess the need further capital infusion.3.6 REASONS FOR ASSETS BECOMING NPAS:MANAGEMENT OF NON-PERFORMING ASSETS 24 S.V PG COLLEGE:KADAPA
  25. 25. APGB, KADAPA Multiple factors are responsible for the increasing size of NPAs inbanks. A few prominent reasons are: • Poor credit appraisal system. • Lack of proper monitoring. • Reckless advances to achieve the target. • No or lack of corporate culture. • Inadequate legal provisions on for closure and bankruptcy. • Change in economic policy and poor auditing practices. • Lack of co-ordination between banks. • Directed lending to certain sectors.3.7 BASIC METHODS OF MANAGEMENT OF NPAS: Management of NPAs is a difficult task in practice.Management of NPAs means how to settle NPAs account in the books. In simpleterms, it focuses on the method of settlement of NPAs account. The methods maydiffer from bank to bank. The following facts are some of the basic methods ofmanagement of NPAs. • Compromise • Legal remedies • Regular training program • Recovery camps • Write off • Spot visits • Rehabilitation of potentiality viable units • Other methodsMANAGEMENT OF NON-PERFORMING ASSETS 25 S.V PG COLLEGE:KADAPA
  26. 26. APGB, KADAPA3.7.1 COMPROMISE: One of the basic methods of management of NPAs is compromise. Theterm compromise stands with the meaning of “Settlement of dispute reached bymutual concessions.” The following are the ways for bringing about a compromisein settlements of NPAs. • It is negotiated settlement under which the bank should ensure recovery of its dues at maximum with a minimum expense. • An advantage in settlement cases is that banks can promptly recycle the funds instead of restoring to expensive recovery proceedings spread over a long period. • All compromise proposals approved by any functionary should be promptly reported to the next higher authority for post facto scrutiny. • Proposal for writing off/compromise should be first by a committee of senior executives of the bank. • Special recovery cells should be setup at all regional levels.3.7.2 LEAGAL REMEDIES: One of the methods of management of NPAs is legal remedies. When thebanks observe that the borrower is making willful default, no more time should belost instituting appropriate recovery proceedings. The legal remedies are filing ofcivil suits.3.7.3 REGULAR TRAINING PROGRAM: It should be made mandatory that all levels of executives are required toundergo the regular training program on credit and NPA management. It is veryuseful and helpful to the executives for dealing with the NPAs properly.3.7.4 RECOVERY CAMPS: The banks should conduct regular or periodical recovery camps in thebank premises or some other common places; such type of recovery camps reducesthe level of NPAs in the banks.MANAGEMENT OF NON-PERFORMING ASSETS 26 S.V PG COLLEGE:KADAPA
  27. 27. APGB, KADAPA3.7.5 WRITE OFFS: Write offs are also one of the common management techniques of NPAs.The assets are treated as loss assets, when the bank writes off the balances. Theultimate aim of the write off is to clean the balance sheet.3.7.6 SPOT VISITS: The bank officials should visit the borrowers’ business place or borrowersfield regularly or periodically. It is also helpful for the bank to control or reduce theNPAs limit.3.7.7 REHABILITATION OF POTENTIALLY VIABLE UNITS: The unit is sick due to technical obsolescence of inefficient managementor financial irregularities. When the Bank settles the dues of such companies throughthe compromise or through the legal actions, the better is to be followed.3.7.8 OTHER METHODS: • Continuous phone calls to defaulters and borrowers. • Media announcement regarding the non-payment of loans .3.8 CAUSES AND CONSEQUENCES OF NPAS: One of the reasons for the accumulators of large portfolio of NPAs withbanks is that offered lending is not linked to productive investment and recovery ofcredit is not linked with to product sale. The borrowers are mainly farmers and smallscale industries owners whose financial conditions are generally bad. The volume ofbank credit stacked in sick industries is the evidence of this problem. Many of these causes are related to faulty credit management like defectivecredit recovery mechanism, lack of efficiency in the work force, longtime lagbetween sanctions and disbursements, unscientific repayment schedule, onesutilization of loans by the borrowers.MANAGEMENT OF NON-PERFORMING ASSETS 27 S.V PG COLLEGE:KADAPA
  28. 28. APGB, KADAPA Untimely communication to the borrower regarding their due date, lackof legal mechanism, political intervention at all levels etc., have also beencontributing for mounting NPAs. If the level of NPAs is not controlled timely, theywill: • Reduce the earning capacity of assets and badly affects Return On Assets (ROA). • Higher provisioning requirement on mounting NPAs adversely affects the capital adequacy and also the profitability. • Cost of capital will increase due to NPAs require economic value added. • NPAs cause a decrease in the value of shares. • NPAs affect the market competitiveness. • NPA becomes a cause for the reduction in availability of funds for further credits expansion due to the unproductiveness of the existing portfolio. • NPAs affect the risk taking ability. • On the whole, it affects the credibility of the bank and bank will be in a difficult position in raising fresh capital.MANAGEMENT OF NON-PERFORMING ASSETS 28 S.V PG COLLEGE:KADAPA
  29. 29. APGB, KADAPA RESEARCH METHODOLOGY4.1 RESEARCH: Research refers to search for knowledge. Research is an art of scientificinvestigation. A careful investigation or inquiry especially through search for newfacts in any branch of knowledge. One can visualize the fact that a detailed study isrequired in each practical situation for better results. Any effort which is directed tostudy for better results is known as research. In other words a research is anorganized set of activities to study and develop a model or procedure/technique tofind the results of a realistic problem supported by literature and data such that itsobjectives are optimized and further make recommendations interferences forimplementations.Descriptive Vs Analytical: Descriptive research includes surveys and fact finding enquiries of differentkinds. The major purpose of descriptive research is description of the state of affairsas it exists at present. In analytical research, on the other hand the researcher has touse facts or information already available, and analyze these to make a criticalevaluation of the material.Fundamental research: It is also called as basic or pure research. “Gathering knowledge forknowledge” sake is termed as pure research. Fundamental research is concerned withgeneralizations and with the formulation of theory.Quantitative Vs Qualitative research:MANAGEMENT OF NON-PERFORMING ASSETS 29 S.V PG COLLEGE:KADAPA
  30. 30. APGB, KADAPA Quantitative research is based on the measurement of quantity or amount. Itis applicable to phenomenon that can be expressedin terms of quantity. Qualitative research is concerned with qualitative phenomenonrelating to or involving quality or kind.Exploratory research: Exploratory research is an initial research which analyses the data andexplores the possibility of obtaining as many relationships as possible betweenDifferent variables without knowing their end-applications this means that a generalstudy will be conducted without having any specific end-objective except toestablish as many relationships as possible between variables of the study.4.2 LITERATURE REVIEW Keeton and Morris (1987) present one of the earliest studies to examine thecauses of loan losses. In the latter paper the authors examined the losses by 2,470insured commercial banks in the United States (US) over the 1979-85. Using NPLsnet of charge-offs as the primary measure of loan losses Keeton and Morris (1987)shows that local economic conditions along with the poor performance of certainsectors explain the variation in loan losses recorded by the banks. The study alsoreports that commercial banks with greater risk appetite tend to record higher losses. Meanwhile, Rajan and Dhal (2003) utilise panel regression analysis to reportthat favourable macroeconomic conditions (measured by GDP growth) and financialfactors such as maturity, cost and terms of credit, banks size, and credit orientationimpact significantly on the NPLs of commercial banks in India. Using a pseudo panel-based model for several Sub-Saharan Africancountries, Fofack (2005) finds evidence that economic growth, real exchange rateappreciation, the real interest rate, net interest margins, and inter-bank loans aresignificant determinants of NPLs in these countries. The author attributes the strongassociation between the macroeconomic factors and non-performing loans to theundiversified nature of some African economies.MANAGEMENT OF NON-PERFORMING ASSETS 30 S.V PG COLLEGE:KADAPA
  31. 31. APGB, KADAPA More recently Huetal (2006) analyse the relationship between NPLs andownership structure of commercial banks in Taiwan with a panel dataset coveringthe period 1996-1999. The study shows that banks with higher governmentownership recorded lower non-performing loans. Huetal (2006) also show that banksize is negatively related to NPLs while diversification may not be a determinant.4.3 NEED FOR THE STUDY: India is an agriculture based country. Money is essential for the development ofagriculture sector. The requirement of long term and short term funds are supplyingby Regional rural banks. In the present Indian economical arena, the regional ruralbanks are supposed to play a vital role for flourishing economic development byproviding effective credit support to various regions, sectors and sections. Thefailure of the banking sector may have an adverse impact on other sectors. Non-performing Assets are one of the major concerns for banks in India. Non- performingassets are those assets of the bank that do not generate income. The purpose of thestudy is to know how effectively banks are recollecting loans from the customers.4.4 OBJECTIVES OF THE STUDY: The objectives of the present study are to examine the performance of loanportfolios and procedures of decision making in the area of management of NPAs inRegional Rural Banks. For an-depth examination of management of NPAs, APGBank, Kadapa is chosen as a case study. The objectives are: 1. To point out the amount of Non-Performing Assets of APG Bank, Kadapa. 2. To find out the problems of bank due to NPAs. 3. To highlight Loans and Advances trend of APG Bank, Kadapa. 4. To offer suggestions to overcome the problems regarding NPAs4.5 HYPOTHESES OF THE STUDY:MANAGEMENT OF NON-PERFORMING ASSETS 31 S.V PG COLLEGE:KADAPA
  32. 32. APGB, KADAPAH01 : There is no significant difference between performing and non-performingassets.H02: There is no significance difference in the means of sub-standard assets, doubtfulassets and loss assets in recovery of mounting of NPAs.H03: The priority and Non-priority sectors are independent.4.6 SURVEY DESIGN: The study was undertaken to analyze the non-performing assets of the ANDHRAPRAGATHI GRAMEENA BANK, KADAPA. The analysis purely depends on thesecondary data. It was collected from the annual reports of APG Bank, Kadapa, thefacts published in the annual reports and bulletin of RBI, referred books, journals,newspapers and magazines.4.7 RESEARCH DESIGN:Research Approach: Analytical in nature. The calculated ratios have beenanalyzed to interpret the results of the study.Research period: The period for evaluating MANAGEMENT OF NON-PERFORMING ASSETS in this study is five years, i.e. from financial year 2006-07to 2010-11.Sources of Data: The data is collected from various sources as follows.Primary Data: Primary data collected from the Bank’s Balance Sheets, NPA’s, andstatements and also by taking personal visit to the employees of the banks.Secondary Data: Secondary data was collected from journals, bank’s prospectus,bank’s annual reports and internet.MANAGEMENT OF NON-PERFORMING ASSETS 32 S.V PG COLLEGE:KADAPA
  33. 33. APGB, KADAPA Tools and Techniques of analysis: To measure the management of non-performing assets for some statistical tools has been used.4.8 STATISTICAL TOOLS: . The statistical tools used for data analysis are percentages analysis; Chi-square test, ANOVAs test and co-efficient of correlation are used to understand theimpact of NPAs on profitability, liquidity and solvency of the selected Bank.4.8.1 Pearsons product-moment coefficient: The most familiar measure of dependence between two quantities is thePearson product-moment correlation coefficient, or "Pearsons correlation." It isobtained by dividing the covariance of the two variables by the product of theirstandard deviations. Karl Pearson developed the coefficient from a similar butslightly different idea by Francis Galton. The population correlation coefficient ρX,Y between two random variables X and Ywith expected values μX and μY and standard deviations σX and σY is defined as: Where E is the expected value operator, cov means co-variance, and, corr a widely used alternative notation for Pearsons correlation. The Pearson correlation is defined only if both of the standard deviations arefinite and both of them are nonzero. It is a corollary of the Cauchy–Schwarzinequality that the correlation cannot exceed 1 in absolute value. The correlationcoefficient is symmetric: corr(X,Y) = corr(Y,X). The Pearson correlation is +1 in the case of a perfect positive (increasing)linear relationship (correlation), −1 in the case of a perfect decreasing (negative)linear relationship (anti correlation), and some value between −1 and 1 in all otherMANAGEMENT OF NON-PERFORMING ASSETS 33 S.V PG COLLEGE:KADAPA
  34. 34. APGB, KADAPAcases, indicating the degree of linear dependence between the variables. As itapproaches zero there is less of a relationship (closer to uncorrelated). The closer thecoefficient is to either −1 or 1, the stronger the correlation between the variables. If the variables are independent, Pearsons correlation coefficient is 0, but theconverse is not true because the correlation coefficient detects only lineardependencies between two variables. For example, suppose the random variable X issymmetrically distributed about zero, and Y = X2. Then Y is completely determinedby X, so that X and Y are perfectly dependent, but their correlation is zero; they areuncorrelated. However, in the special case when X and Y are jointly normal,uncorrelatedness is equivalent to independence. If we have a series of n measurements of X and Y written as xi and yi where i =1, 2, ..., n, then the sample correlation coefficient can be used to estimate thepopulation Pearson correlation r between X and Y. The sample correlation coefficientis writtenWhere x and y are the sample means of X and Y, and sx and sy are the samplestandard deviations of X and Y.This can also be written as:If x and y are measurements that contain measurement error, as commonly happensin biological systems, the realistic limits on the correlation coefficient are not -1 to+1 but a smaller range.4.8.2 ANOVAMANAGEMENT OF NON-PERFORMING ASSETS 34 S.V PG COLLEGE:KADAPA
  35. 35. APGB, KADAPA The analysis of variance has been studied from several approaches, the mostcommon of which use a linear model that relates the response to the treatments andblocks. Even when the statistical model is nonlinear, it can be approximated by alinear model for which an analysis of variance may be appropriate.Partitioning of the sum of squares The fundamental technique is a partitioning of the total sum of squares S intocomponents related to the effects used in the model. For example, we show themodel for a simplified ANOVA with one type of treatment at different levels. So, the number of degrees of freedom f can be partitioned in a similar wayand specifies the chi-squared distribution which describes the associated sums ofsquares. See also Lack-of-fit sum of squares.4.8.3 CHI-SQUARE TEST Adapted by Anne F. Maben from "Statistics for the Social Sciences" by VickiSharpThe chi-square (I) test is used to determine whether there is a significant differencebetween the expected frequencies and the observed frequencies in one or morecategories. Do the numbers of individuals or objects that fall in each category differsignificantly from the number you would expect? Is this difference between theexpected and observed due to sampling error, or is it a real difference?Chi-Square Test Requirements1. Quantitative data.MANAGEMENT OF NON-PERFORMING ASSETS 35 S.V PG COLLEGE:KADAPA
  36. 36. APGB, KADAPA2. One or more categories.3. Independent observations.4. Adequate sample size (at least 10).5. Simple random sample.6. Data in frequency form.7. All observations must be used.The chi-square formula used on these data is X2 = (O - E)2 where O is the Observed Frequency in each category. E E isthe Expected Frequency in the corresponding category _ is _sum of_ df is the"degree of freedom" (n-1) X2 is Chi Square. DATA ANALYSIS AND INTERPRETATIONAnalysis of Management of NPAs in APG Bank, Kadapa: For the banking system, the quality of loan assets is the most essentialfactor for the basic viability. Excess of overdue advances of rural banks in India aremounting and in consequences, the Non-Performing Assets in their portfolio are onthe rise, impinging on the bank’s viability. This not only eats into the bank’sprofitability, but also hampers their ability to recycle the funds in an effectivemanner. Avoidance of losses due to loan is one of the pre occupations of themanagement of all banks. Complete elimination of such losses in not possible. Thebank’s management aims to keep the losses at low level. In fact, it is the level ofnon-performing assets. Which to great extent, differentiates between a good and worse bank? Forclear understanding of the effective management of NPAs in APG Bank, Kadapa,data is presented in the heads of NPAs per cent to total assets and advances, Sector-wise NPAs, asset-wise NPAs, etc. as shown in the table1 to table3, and table 5 to 8in shows analysis of sector wise overdues. Hence, for all data, interpretations weremade and tables have been used to support the discussion related to findings. Finally,MANAGEMENT OF NON-PERFORMING ASSETS 36 S.V PG COLLEGE:KADAPA
  37. 37. APGB, KADAPAconclusion and recommendations were made accordingly. The statistical tools usedfor data analysis are correlation with t-test, Chi-squre test, ANOVA test andpercentage analysis are used to understand the impact of NPAs on profitability,liquidity and solvency of the selected bank.Table1: NPAs percentage to Total Assets of APG Bank, Kadapa ( in Lakhs) Year Gross NPAs to Total Net NPAs to Total Assets Total Assets Assets % %2006-07 4700.53 1.31 1621.20 0.45 356484.502007-08 7650.74 1.74 4165.02 0.94 439238.862008-09 6356.11 1.38 2526.78 0.54 460294.702009-10 5827.16 1.04 0.00 0.00 558031.392010-11 8252.91 1.20 1927.03 0.28 683028.18Source: Compiled from the Annual reports of APG Bank, Kadapa.MANAGEMENT OF NON-PERFORMING ASSETS 37 S.V PG COLLEGE:KADAPA
  38. 38. APGB, KADAPAINTERPRETATION: Table1 shows the Gross and Net NPAs to total assets of APG Bank,Kadapa. From the period 2006-07 to 2010-11. The ratio of gross NPAs to total assetsof APGB in the year 2006-07 is 1.31% and Net NPAs is 0.45% in the year. GrossNPAs slightly increasing to 1.74% in 2007-08 and net NPAs slightly increasing to0.94% in 2007-08. Then the gross NPAs gradually come down to 1.04% in 2009-10and net NPAs totally fall down to 0.00% in 2009-10. Showing a decreasing trendand having slight increase in the year 2010-11. On seeing this it can be concludedthat bank is Performing is better way in NPAs recovery.Table2: NPAs percentage to Total Advances of APG Bank, Kadapa ( inLakhs) Year Gross NPAs to Total Net NPAs to Total Total Advances Advances Advances % %2006-07 4700.53 1.98 1621.20 0.68 237793.872007-08 7650.74 2.57 4165.02 1.40 297217.492008-09 6356.11 2.06 2526.78 0.81 308232.682009-10 5827.16 1.63 0.00 0.00 356355.072010-11 8252.91 1.92 1927.03 0.44 429101.49Source: Compiled from the Annual reports of APG Bank, Kadapa.MANAGEMENT OF NON-PERFORMING ASSETS 38 S.V PG COLLEGE:KADAPA
  39. 39. APGB, KADAPA INTERPRETATION: Table2 shows the Gross and net NPAs to total Advances of APG Bank kadapa. From the period 2006-07 to2010-11.The ratio of gross NPAs to total advances of APGB in the year 2006-07 is 1.98% and net NPAs is 0.68%. the Gross NPAs increasing in the year 2007-08 is 2.57% and net NPAs is increasing to 1.40%. Then the gross NPAs gradually comes down to 1.63% in the year 2009-10 and net NPAs totally fall down to 0.00% in the year 2009-10. Showing a decreasing trend having slight increase in the year 2010-11. This shows norms are followed effectively by the recovery, the bank’s net NPAs to Advances ratio has been reached below the international standard level of two to three percent. This is evident for best performance in reducing of mounting NPAs. Table3: Asset classification of Performing and Non- Performing assets of NPAs in APG Bank Kadapa ( in Lakhs) Standard assetsYear Gross Advances (Performing assets) Non-Performing assets Sub-standard Doubtful assets Loss assets assets MANAGEMENT OF NON-PERFORMING ASSETS 39 S.V PG COLLEGE: KADAPA
  40. 40. APGB, KADAPA As% of gross advances As% of gross advances As% of gross advances As% of gross advances Total (%)2006-07 233093.40 98.02 1222.59 0.51 2585.26 1.09 892.68 0.38 237793.87 1002007-08 289566.75 97.42 4028.58 1.36 2676.42 0.90 945.74 0.32 297217.49 1002008-09 301876.57 97.94 1570.94 0.51 3826.42 1.24 958.75 0.31 308232.68 1002009-10 350527.91 98.37 1158.15 0.32 3735.54 1.04 933.47 0.27 356355.07 1002010-11 420848.58 98.07 3861.77 0.90 3562.03 0.84 829.11 0.19 429101.49 100 Source: Compiled from the Annual reports of APG Bank, Kadapa. MANAGEMENT OF NON-PERFORMING ASSETS 40 S.V PG COLLEGE: KADAPA
  42. 42. APGB, KADAPAINTERPRETATION: In The Table3 Asset Classification Of Performing And Non-PerformingAssets Of APGB Kadapa From The Period 2006-07 To 2010-11. In The TableShowing The Standard Assets Are As percentage of Gross Advances Is 98.02% InThe Year 2006-07.Then The Slightly Decreasing To 97.42% In The 2007-08. AfterStandard Assets Increasing To 98.37% In The 2009-10. After Slightly decreasing to98.07% in the year 2010-11. In the table sub-standard assets are as percentage ofgross advances is 0.5% in the year 2006-07. After slightly increasing to 1.36% in theYear 2007-08.then the gradually decreasing to 0.90% in the year 2010-11. In thetable doubtful assets are as on percentage of gross advances is 1.09% in the 2006-07.After doubtful assets slightly increasing to 1.24% in the year 2008-09. Afterdecreasing to 0.84%in the year 2010-11. In the table loss assets as on percentage ofgross advances is 0.38% in the year 2006-07. After gradually decreasing to 0.19% inthe year 2010-11.It shows that APGB is decreasing the loss assets year by year.MANAGEMENT OF NON-PERFORMING ASSETS 42 S.V PG COLLEGE:KADAPA
  43. 43. APGB, KADAPAt- test for the significance of Correlation Coefficient between the performingand Non- performing assets: t table for 3 d.f at 5% level of significance= 2.35 t Cal < t table value, H01 is accepted. The co-efficient of correlation(r) between the performing and non-performing assets. It shows a moderate degree of positive correlation of 0.69. AndT-test is applied. H01 is accepted. Hence we conclude that there is no significantdifference between performing and Non-performing assets.TABLE4: ANOVA TABLEsource of degree of Sum of mean F- Table valuevariation freedom squares square value 14235243.3 7117621.6Between 2 5 7 8.6 3.88 at 5% level Within 12 9843472.35 820289.36 Total 14 significance To sum up, the null hypothesis that there is no significance difference in theasset-wise recovery of mounting of NPAs of the APGB over the study period, forwhich ANOVA test is employed and the results are presented in table4. Thecalculated value of F is greater than the table value, the hypothesis H02 is rejected.Hence, there is a significance difference in the means of sub-standard assets,doubtful assets and loss assets in recovery of mounting of NPAs.MANAGEMENT OF NON-PERFORMING ASSETS 43 S.V PG COLLEGE:KADAPA
  44. 44. APGB, KADAPA Table5: Priority and Non- priority sectors wise Over dues of APGB Kadapa ( in Lakhs)Year Farm Non- S.H.G Indirec Priority Non-Priority Total sector(a) Farm t sector(a+b+c+d) sector (c) sector(b finance % % % ) (d) 20298.6 2198.38 332.60 42.68 22872.3 93.3 1639.8 6.6 24512.1 1002006 4 0 1 5 9 5 26651.1 2606.01 469.40 100.15 29826.6 92.7 2341.9 7.2 32168.6 1002007 2 8 1 5 9 3 49831.4 3353.63 971.95 323.38 54480.4 93.3 2688.5 4.7 57168.9 1002008 6 3 0 5 0 8 51513.6 3099.04 2482.6 196.80 57292.1 96.6 2021.2 3.4 59313.3 1002009 5 2 2 0 0 0 22010 54442.3 4510.11 2789.3 0.34 61742.1 95.1 3176.6 4.9 64918.7 100 5 0 0 0 8 0 8Chi-squar 830.41eTablevalue 9.49% at 5% level of significance Source: Compiled from the Annual reports of APG Bank, Kadapa. MANAGEMENT OF NON-PERFORMING ASSETS 44 S.V PG COLLEGE: KADAPA
  45. 45. APGB, KADAPA The total NPAs of the bank can also be classified as priority sector and non-priority sector. The position of NPAs of these sectors is shown given table5. Intable5, the sector-wise analysis of NPAs of APGB shows that the proportion ofNPAs in priority sector is in fluctuating manner over the study period from 2006 to2010. The proportion of NPAs in the non-priority sector is also in a fluctuatingmanner over the study period from 2006 to 2010. To sum up, the null hypothesis was set up is to measure the significantdifference among the priority sector and non-priority sector for which chi-square testis employed, The calculated vale of Chi-Square test is 830.41, which is more than 9.49 at 5% level of significance, the hypothesis H03 was rejected. Hence, the priorityand non priority sectors are not independent (or dependent).Table6: Sector wise over dues of APGB Kadapa ( in Lakhs)MANAGEMENT OF NON-PERFORMING ASSETS 45 S.V PG COLLEGE:KADAPA
  46. 46. APGB, KADAPA Farm-Sector Non-Farm sector TotalYear % % %2006 20298.64 90.2 2198.38 9.8 22497.02 1002007 26651.12 91.1 2606.01 8.9 29257.13 1002008 49831.46 93.7 3353.63 6.3 53185.09 1002009 51513.65 94.3 3099.05 5.7 54612.70 1002010 54442.35 92.3 4510.11 7.7 58952.46 100Source: Compiled from the Annual reports of APG Bank, Kadapa.Table7: Farm sector over dues of APGB Kadapa ( in Lakhs)MANAGEMENT OF NON-PERFORMING ASSETS 46 S.V PG COLLEGE:KADAPA
  47. 47. APGB, KADAPA Minor Crop Loans Agrl.Tractors Agrl.allied Other Agrl. Total irrigationYear % % % % % %2006 19256.45 94.86 229.37 1.13 223.83 1.11 344.05 1.69 244.94 1.21 20298.64 1002007 23136.55 86.82 122.44 0.45 120.83 0.45 305.71 1.15 2965.59 11.13 26651.12 1002008 43535.59 87.37 159.14 0.32 152.40 0.30 311.14 0.63 5673.19 11.38 49831.46 1002009 43775.41 84.97 183.61 0.35 159.94 0.32 418.96 0.82 6979.73 13.54 51513.65 1002010 45967.79 84.43 350.53 0.64 260.52 0.48 797.96 1.47 7065.55 12.98 54442.35 100 Table8: Non- Farm sector over dues of APGB Kadapa ( in Lakhs) Rural artisian Service&PSE Retail Trade Other NFS Total NFS Year % % % % % 2006 467.33 21.26 152.24 6.92 1345.02 61.18 233.79 10.64 2198.38 100 2007 571.98 21.95 129.47 4.97 1566.12 60.09 338.44 12.99 2606.01 100 2008 552.27 16.47 248.98 7.42 1954.86 58.30 597.52 17.81 3353.63 100 2009 535.63 17.29 240.11 7.74 1797.91 58.01 525.40 16.96 3099.05 100 2010 578.26 12.82 231.38 5.13 2401.70 53.25 1298.77 28.80 4510.11 100 Source: Compiled from the Annual reports of APG Bank, Kadapa. INTERPRETATION: MANAGEMENT OF NON-PERFORMING ASSETS 47 S.V PG COLLEGE: KADAPA
  48. 48. APGB, KADAPA In the above tables in the shows sector wise over dues of APGB, Kadapa. Thefarm sector over dues is 90.20% in the year 2006-07. And Non-Farm sector overdues is 9.8%. The farm sector gradually increased to 94.3% in the year 2009-10. AndNon-Farm sector over dues are gradually decreased to5.7% in the year 2009-10.Then the farm sector over dues is decreased to 92.3% in the year 2010-11. And Non-Farm sector over dues are increased to 7.7% in the year 2010-11.FINDINGS:MANAGEMENT OF NON-PERFORMING ASSETS 48 S.V PG COLLEGE:KADAPA
  49. 49. APGB, KADAPA• From the year 2006-07 to 2010-11 the percentage of Gross NPAs to Total assets is 1.31, 1.74, 1.38, 1.04 and 1.20 respectively and the percentage of Net NPAs to Total assets is 0.45, 0.94, 0.54, 0.00 and 0.20 respectively. This is evident for the better way in reduction of mounting NPAs.• From the year 2006-07 to 2010-11 the percentage of Gross NPAs to Total advances is 1.98, 2.57, 2.06, 1.63 and 1.92 respectively. And the percentage of Net NPAs to Total advances is 0.68, 1.40, 0.81, 0.00 and 0.44 respectively. This is evident for the better way in reduction of mounting NPAs.• It is observed that there is moderate degree of positive correlation r=0.69, between performing and non-performing assets. And t-test is applied. H01 is accepted. Hence we conclude that there is no significant difference between performing and non-performing assets.• The null hypothesis was set up to know whether there is significance in the means of non-performing assets, for which ANOVAs test is employed, the hypothesis H02 is rejected. it is observed that there is a significant difference in the means of non-performing assets. i.e. sub-standard assets, doubtful assets and loss assets over the study period in recovery of mounting NPAs.• The hypothesis was set up to measure the significant difference among the priority sector and non-priority sector, for which chi-square test is employed, the hypothesis H03 was rejected. It is observed that priority sector and non-priority sector are not independent.(i.e. they are dependant).MANAGEMENT OF NON-PERFORMING ASSETS 49 S.V PG COLLEGE:KADAPA
  50. 50. APGB, KADAPASUGGESTIONS: After going through the summary of findings and the results of hypothesestesting, the following are suggestions offered to improve the effective managementof mounting NPAs of the APGB.1. The bank may consider that the NPAs should be avoided in initial stages of creditconsideration by putting in place appropriate credit appraisal system.2. The percentage of Doubtful Assets are more by comparing to the percentage ofSub-standard assets, so bank need to take necessary steps to reduce the percentageof Doubtful assets, which makes to reduce Loss assets to 0%.3. The bank may send circulation of informant and defaulters, which will serve as acaution list which considers request for new additional credit limits from defaultingborrowers and also file criminal cases in regard to willful defaulters.4. The bank may take steps to constitute more legal cells and tribunals, recoverybranches, Lok Adalts etc., for speedy recovery of NPAs.5. The bank should adopt the technological changes by converting their banks tocomputerized banks, which may lead to a prompt and easy service for theircustomers.MANAGEMENT OF NON-PERFORMING ASSETS 50 S.V PG COLLEGE:KADAPA
  51. 51. APGB, KADAPACONCLUSION: In the liberalized banking scenario, APGB, Kadapa is one of the leadingRegional Rural Banks, which welcomes the radical changes and makes theorganization fit for the changes without much difficulty. The performance highlightsof the bank exposed that it has achieved the tasks and targets from time to time andhas continuously retained a good position in financial strength. It is time when thebank should go for the use of information technology and other electronic methodsfor banking in this changing scenario of the banking sector, by fully computerizingits bank branches to provide prompt service to the customers. The bank should framenew policies and procedures, which should not go out of the regulation framed bythe RBI for regional rural banks. The management should also design a roadmap toraise the bar of the bank equal to international standard. If it is done, it is sure that“Andhra Pragathi Grameena bank, Kadapa” will be the number one bank amongthe Regional Rual banks in India.MANAGEMENT OF NON-PERFORMING ASSETS 51 S.V PG COLLEGE:KADAPA
  52. 52. APGB, KADAPABIBLIOGRAPHY:Books: 1. C.R. Kothari, “Research Methodology Methods & Techniques”, New Age International Publishers, Hyderabad, 2re 2004. 2. Anand Sharm, “Statistics for Management”, Himalaya Publishing House, Mumbai, 2re 2008. 3. R.M Srivastava & Divya Nigam, Management of Indian financial Institutions, Himalaya Publishing House, Mumbai, 10e 2010. 4. Anderson, Sweeney & Williams “Quantitative methods for Business” Thomson India Edition, Haryana, 10e 2007. 5. Parameswaran.R and Natarajan.S, “Indian Banking” Sulthan chand and sons, New Delhi,2002.Journals: 1. R. Suresh, “ Management of NPAs of Pandyan Grama Bank, Virudhunagar, Tamil Nadu” Indian Journal of Finance, oct 2010, p 37-47. 2. Dr. K. Rajender & S. Suresh, “Management of NPAs in Indian Banking a case study of State Bank of Hyderabad” The Mnagement of Account, Sept 2007, p. 740-749Reports: 1. MASTER CIRCULAR On Income Recognition, Asset Classification, Provisioning & Other Related Matters, RESERVE BANK OF INDIA, June 30, 2008. 2. Shri M. Narashimhan Working Group Recommendations (1975).MANAGEMENT OF NON-PERFORMING ASSETS 52 S.V PG COLLEGE:KADAPA
  53. 53. APGB, KADAPA 3. Prudential guidelines on restructuring of advances, Prashant Saran, Chief General Manager-in-Charge, RBI, 2008-09. 4. Annual reports of APGB, KADAPA, from 2006-07 to 2010-11.MANAGEMENT OF NON-PERFORMING ASSETS 53 S.V PG COLLEGE:KADAPA